The result was heavily influenced by a $53 million increase in tax compared with the same period a year earlier. Statutory earnings before interest, tax, depreciation and amortisation was down just 0.2 per cent at $870 million, in line with analsyts' predictions.

Revenue shrank 2.6 per cent to $2.6 billion, with only interconnection fees and IT services lifting sales, while Telecom's cost-cutting measures saw expenses shrink 3.8 per cent in the period.

Adjusted net profit, which includes natural disaster and ultra-fast broadband costs and the gain on the sale of its AAPT consumer division, sank 35 per cent to $158 million.

"A continued strong focus on operational excellence and cost control has helped to offset increased tax and ongoing regulatory impacts," said chief executive Paul Reynolds in a statement.

"Telecom's strategy has been updated to drive better product, platform and process outcomes for customers, create a leaner operating model, and an intense focus on free cash flow through management of capital and operating costs."

The phone company cut its forecast capital expenditure to a range of between $950 million and $1 billion from a previous $1 billion to $1.1 billion as uncertainty about its inclusion in the government's ultra-fast broadband initiative still hangs over its future.

Telecom will pay a dividend of 7 cents a share for the period. The shares fell 0.9 per cent to $2.19 in trading yesterday, and have gained 1.8 per cent since the start of this year.

Earnings guidance for the full financial year is for adjusted EBITDA of between $1.72 billion and $1.78 billion, with increases over the following two years of between $20 million and $80 million.

However, these forecasts do not account for the impact of the UFB project, which Telecom says "is likely to reshape the industry."

The company's retail unit boosted earnings before interest, tax, depreciation and amortisation by 36 per cent to $240 million, the biggest gain among the units, as it bounced back from the high costs related to the stilted launch of its XT mobile network.

Mobile revenue shrank 3.7 per cent in the period. The Chorus unit increased earnings 1.6 per cent to $391 million, while Gen-i lifted EBITDA 6.1 per cent to $105 million.

The corporate unit lifted EBITDA 5.6 per cent to $38 million. Wholesale and international earnings more than halved to $46 million as its internal charges to Chorus climbed by the same amount.

- AAPT earnings sank 28 per cent to $48 million after the perennial underperforming Australian unit divested its consumer division.

This was the first half-yearly announcement by Telecom since it decided to return to six-monthly reports from its previous quarterly updates.

Telecom has been short-listed for a large chunk of the $1.35 billion government-funded ultra-fast broadband network initiative, including the all-important Auckland market.

Last week, it was confirmed as front-runner in a joint venture with mobile rival Vodafone New Zealand Ltd. for the government's $300 million rural broadband initiative. Prime Minister John Key told Parliament this week he expects to legislate for the UFB regulatory framework by the middle of the year.

The phone company's involvement in the government projects will only be possible if it carves out its Chorus network infrastructure unit as a separate entity in return for significant regulatory relief on its existing copper-line network.

Last month, Telecom pushed out the timeline for such a demerger as it continues to negotiate with the government's Crown Fibre Holdings, which is managing the UFB process, and Reynolds said the company's still in discussions with CFH and the Ministry of Economic Development.